Microsoft's Bing, bold bets face payoff test

On the eve of Microsoft's annual employee meeting at Safeco Field, Microsoft Chief Executive Steve Ballmer sat down to talk about the coming phone war, how Microsoft plans to take more share from Google and how often he checks his Facebook page.

Microsoft's annual meeting for its 40,000 employees in the Puget Sound area is closed to the public, but expect the event to tie up traffic around the baseball stadium.

When: Tuesday, 11 a.m. to 3:30 p.m.

Where: Safeco Field, Seattle

With the imminent launch of a new Windows mobile phone and an innovative motion sensor for the Xbox 360, this holiday season will be a crucible for Microsoft.

The software company already is the undisputed king of desk jockeys with Windows and Office, franchises that enjoyed successful launches in the past 12 months. However, the company this holiday will court app-loving hipsters with Windows Phone 7 and video gamers with the Kinect for Xbox.

On the eve of Microsoft's annual employee meeting Tuesday at Safeco Field, CEO Steve Ballmer sat down to talk about the coming phone war, how Microsoft plans to take more share from Google and how often he checks his Facebook page.

This is the edited interview:

Q: You're holding your employee meeting. What's the message you want to send to the 40,000 employees in the Seattle area?

A: We've been bold in our bets. We've got great stuff coming. We better continue to be bold in what we're trying to do from a product perspective. ... I'm going to talk about our boldness, whether it's Windows Phone 7 or Kinect or IE9 (Internet Explorer 9), some of the things we've done that are starting to pay off and to continue to be bold in our product development.

Q: Windows Phone 7 (a cellphone platform) is coming out this holiday season. How are you going to turn this into a billion-dollar business for Microsoft?

A: The place to start is, "Are we going to have cool phones out with our software on them this holiday season?" You put aside the questions of how you make money and blah, blah, blah. That's all interesting in the long run. In the short run (claps his hands and rubs them together), people gotta want these phones. I think they're going to look pretty good. ... If we start the popularity chain and start kind of the buzz around these things, we'll be able to make some money off them.

Q: What did you learn from the Kin (a mobile phone that Microsoft canceled shortly after it began selling this year)?

A: The No. 1 message from Kin is a message of focus. You only get so many things you can really talk about, communicate, work on with the consumer. You've got to be bold, you've got to look forward and you've got to stay focused. Kin was neither — with 20-20 hindsight — bold enough relative to where the market's going, and it just defocused activity from Windows Phone.

Q: I just saw a quote from Google CEO Eric Schmidt that Apple and Facebook are not his competition, Bing —

A: Bing is his No. 1 competitor! I read that today myself.

Q: He said, "Bing is a well-run, highly competitive search engine." What is your reaction to that?

A: He's right! Yeah, and he still has to compete with Apple and Facebook. Welcome to our world, man. It's a competitive world out there. We're competing, other guys are going to compete with them. We have good competitors. Apple is a good competitor, Google is a good competitor, Oracle is a good competitor, VMware is a good competitor. We partner with Facebook, but we also compete in some dimensions with them. Hey, it's OK, just get out there and work. ... We're his best competitor, and we're a very good competitor and we're going to do a very good job.

Q: You are now a very viable second player in search with the Yahoo partnership. How do you continue to keep gaining in search?

A: It's about the product and quality of innovation. We break the world into three buckets. There are things we just have to do that [the] competition is doing — table stakes. Every day the Web gets bigger, you've got to index and be able to search more of the Web. ...

No. 2, there are places where we're just differentiating left and right. Our maps are better, our images our better, our picture is different. And Google keeps responding. In a sense, because we have lower share, it's almost easier for us to try new things. They have to sort of stay conservative, they gotta make a lot of money. If they change anything, the position on the page, maybe people won't click on their ad the right way. Boom, boom, boom, boom, we're just moving, floating, differentiating. ... They're starting to look at the stuff we're doing and copying it back. What is it? Imitation is the sincerest form of flattery.

And No. 3, there are things we need to do that just fundamentally change the game — by betting on new devices, by betting on new business models. ... That's our job to be the disrupter in this business, and we're going to work hard at it.

Q: Are the layoffs over at Microsoft?

A: "Layoffs" is a very specific word. Are we always trimming and remapping? We're always moving people around. We try something, a project doesn't quite work, we'll cut that team, we tell people find a job someplace else in the company. We're going to continue to do that sort of thing. ...

Q: You've said the company is "all in" on cloud computing. How do you explain that to the average person thinking about buying the stock?

A: ... It's the biggest profit opportunity in front of us. It's a profit opportunity because we can deliver more value to our customers on the cloud instead of at premise, which means we have an opportunity to make more money. And No. 2, as we embrace the cloud, it's also a chance for us to build market share, particularly against Oracle and IBM. ...

Q: When are we going to see Windows 7 on a slate device like the iPad?

A: When it's ready. A Windows 7 slate shipped today. ... The question is when are we going to see additional form factors. We'll see some at Christmas, we'll see some after Christmas, and all through the next year. ...

Q: Windows 7 had a great launch, Office 2010 is out, you're gaining share in Bing, you have a new phone coming out. Why do you think the stock is idling?

A: I don't control the share price. I'm pretty optimistic. Obviously, the company actively continues to buy our shares. The company is investing shareholder money to buy the shares. It's an expression of our optimism. At the end of the day, the market's saying, "You've done a great job, you've got great earnings; prove it to us, prove that you've got the next generation." With some of the products we have delivered and are delivering, we've got our next shot at that next fundamental perception. But, man, we've delivered earnings, there's no doubt about that.

Q: How long do you plan to stay in your position as CEO?

A: I don't know. I'm working away doing the best job I know how to do. The company continues to grow. Outside my family, this is my baby. I want to make sure that, whenever I go, the baby's in great health. It's not a baby, it must be at least a teenager by now, young adult. I want to make sure the place is in very good shape.

Q: Do you have a Facebook page?

A: Yeah.

Q: I found a few "Steve Ballmer" pages, and wasn't sure whether they were real or fake.

A: I do, but I don't want to tell you which one it is because I don't want to get those friend requests. There's about 11 of them (Steve Ballmer pages). Not as many as there are Bill Gates, but there are a few Steve Ballmers.